Burford Capital Ltd (lon:bur)
Burford – Now Undervalued Or Are Muddy Waters Right?

Burford Capital Ltd Financials

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Period12 Months12 Months
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Commentary History
Burford Capital Ltd Share Price
Grade:The Grey Grade - Shares That I Think Are Informative But A Very High Risk Because The Valuation Seems Too High.
Title: Burford – Now Undervalued Or Are Muddy Waters Right?
Company: BUR - Burford Capital Ltd
Share Price Then: 625p
Author: Ian Smith
Date: Wed 12 Feb 2020
Comments: I have been following Burford Capital since Muddy Waters investigations hit the share price, as an AIM listed company I would not normally be interested but MW could be wrong.

If MW were wrong then there may have been an opportunity to buy at the bottom of a rapid and big share price rise.

I don’t want to repeat MW’s analysis but it seems to me that their initial report was substantially correct and there is not about to be a recovery.

I get the fact that Burford have been clear that good performance is dependent on winning some big cases as well as winning the more main stream and lower value cases and If MW hadn’t made me cautious the text below sounds superb.

….with January 2020 seeing litigation successes that would trigger unrealised gains and, if ultimately affirmed and paid, would generate more than $150 million in profits across the Group and more than $100 million in balance sheet profits from a single month's activity. Had January's events occurred in December, Burford's 2019 results would have been materially higher as Burford would have been obliged to take a meaningful portion of those future expected profits into income immediately.

But reading it more carefully it seems to be saying that the $150m has not been paid but we think that we are entitled to it so we expect it to be paid so we will count it as paid.

Hopefully this is not the Farkhad Akhmedov owned $450 million super yacht that has just been released in Dubai as it has been reported that Tatiana Akhmedova was funded by Burford with £18 million in exchange for 30% of any proceeds.

Please tell me that Burford are not saying we have no actual cash coming in to report so we will report possible cash.

Again if MW hadn’t got me worried I would have been happy with the $100 million sale of part of the proceeds of the Petersen case. Then the stories started and haven’t been denied that about a third of this sale seems to have been to a fund managed by Burford.

One of MWs arguments is that the number of big wins is small, only 4 cases since 2012 so such a sale worries me as it may be an accounting success rather than a cash success.

So what about the US listing, is this genuinely going to happen or will it get bogged down in arguments about accounting standards?

If it does happen will a bunch of analysts in the U.S. start looking at the company and say we’re on the MW side of the fence and can’t recommend the company or here is a bargain being held back by being listed on a fairly obscure exchange, The AIM?

All of this doesn’t mean that there isn’t a solid business underneath a layer of optimistic presentation, but is this business really worth 200p per share rather than 1,500p?

Burford has published a chart of returns at which is interesting.

Currently Burford has a P/E of a bit under 5, this in itself worries me as it suggest that even an the pre MW collapse price of around 1,600p the company would be fairly valued.

I know that being on the AIM makes it difficult for some significant investors to buy and with accounts that seem to show a company that is comfortably and genuinely above break even every year why?

The 2019 HY report said Moreover, it is notable that during the first half of 2019, only 49% of our income was from unrealised gains, I understand that once you get used to reporting on hard to value assets this statement may seem day to day normal, the last HY report had $1.65bn of Level 3 assets, presumably results or expected results of litigation.

But it seems that the Petersen/YPF case seems to has grown in value from $666m, to $1bn yet there is no certainty that the Argentine government is minded to pay.

There are also four significant bonds to be aware off.

Amount Due Date
$120,566,000 19 August 2022
$135,552,000 26 October 2024
$223,018,000 1 December 2026
$181,890,000 12 August 2025

I am also following NMC and it is pretty clear that MW were right to call that company out. As shown by the announcement that the major share holders are unsure who actually owns a large number of shares and that many have been pledged as security for loans without this being disclosed.
Read Count/ID: 316/10113

Buy/No Buy In A Nutshell
NegativesAccusations from Muddy Waters that it is mostly smoke and mirrors which seem more credible to me that the managements rebuttals
PositivesThere is a real underlying business which is attractive if the share price drops to match it.
Initial Review Price540p
Last Review Price540p
Last Review Date18-Jul-2020
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